Study says higher oil, gas taxes won’t help debt problem

Examiner Intern

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President Obama’s proposals to raise taxes on oil and gas industries to reduce the federal government's $1.3 trillion annual deficit will cause a loss of 155,000 jobs, $68 billion in lost wages, and $83.5 million in reduced tax revenues.

So says Louisiana State University economist Joseph Mason who released a study today that examined the effects of Obama’s proposition to eliminate tax deductions on oil and gas companies.

Obama has suggested that such revisions will raise about $30 billion in tax revenue over the next 10 years. But that’s not the whole story.

The administration’s 2011 budget proposal contains two items which Mason contests. The first is the exclusion of oil and gas companies from Section 199 of the American Jobs Creation Act. Section 199 allows taxpayers to receive a tax deduction for qualified domestic production activities.

The second Obama proposal would change the so-called Dual Capacity rules that are meant to help U.S. companies compete with foreign firms by allowing them to avoid paying taxes on profits both domestically and abroad.

While Obama would have Section 199 exemptions for only oil and gas industries, the president wants Dual Capacity rules changed for companies in all industries

Mason’s study is based on the premise that: “When a company has to pay $1 more in taxes, it must take that amount from other sources: reducing workers’ pay (either through wage cuts or layoffs); reducing the returns on shareholders’ investments (through lower share price or dividends); and/or reducing its purchases of inputs.”

Because the oil and gas industries play such a huge role in the U.S. economy (in 2008, it contributed about $1 trillion to the economy), tax increases on those firms would have a huge effect on other industries, according to Mason. Jobs would be lost across industries from agriculture to manufacturing.

“The administration’s proposal to eliminate tax deductions on U.S. oil and gas companies is grossly counterproductive toward the goal of increasing federal revenues,” Mason said in a news release about his study issued by the American Energy Alliance, an energy industry advocacy group. The AEA sponsored the Mason study.

“Such a move would have a net negative impact on revenue, thereby increasing federal deficits,” he said. “If the goal is deficit reduction, a far more meaningful approach would be reforming federal tax and business policies that encourage economic growth.

"Expansion of oil and gas exploration and production on the Outer Continental Shelf, for example, would generate an estimated $11 billion annually in Federal tax revenue in the short run, and $55 billion annually in Federal tax revenue in the long run."

Mason's study shows the Obama proposals would fail to meet the goals of increasing tax revenue, and would actually result in a net loss of $53.5 million in tax revenue. At the same time, implementing the proposals would damage the U.S. economy as a whole, as well as the energy industry.